COLOMBO, Sri Lanka (AP) — Japan has agreed to provide a loan to build Sri Lanka's first light railway system aimed at easing traffic congestion in the capital city of Colombo, the island nation's finance ministry said Tuesday.
The loan will be granted in six stages until 2024 for the $1.8 billion project that will begin this year, the ministry said.
An agreement to release the first instalment of $260 million (30 billion yen) was signed Monday between the Japan International Cooperation Agency, which coordinates official development assistance, and Sri Lanka's finance ministry.
The proposed rail line will have 16 stations and run for 16 kilometers on elevated viaducts to minimize land acquisition.
The Japanese agency said the proposed railway system will connect Colombo's commercial hub with the administrative capital and "significantly reduce travel time in the most congested transport corridor in the country, and the only major corridor currently not supported by railway."
The agency said the financing is being provided under an economic partnership with interest rates of 0.1 percent and a 40-year repayment period that includes a 12-year grace period.
Japan is one of the largest contributors to the transport sector in Sri Lanka and has recently financed a section of the country's highways and a new bridge to ease traffic congestion in Colombo.
The loan came as Sri Lanka struggles to repay $5.9 billion in foreign loans this year, of which 40 percent needs to be serviced during the first three months. The country used its reserves to repay a $1 billion sovereign bond loan in January.
A large chunk of Sri Lanka's foreign debt is from China, with loans obtained to build highways and other infrastructure projects, including some that have become white elephants, aggravating the country's debt burden.
In 2017, Sri Lanka leased out a Chinese-built seaport for 99 years in a bid to recover from the heavy burden of repaying a loan obtained to build the facility.